Supply chain agility in a changing environment

In the government’s Autumn Statement, Jeremy Hunt highlighted the need for the UK to secure its energy independence and made reference to the energy sector’s cyclical nature.

With the oil and gas sector continually impacted by global and local factors, it’s clear that businesses will need to be able to scale up (and down) their workforces to respond and successfully navigate these changes. This means that contractor talent is hugely important in ensuring that projects are completed on time and to budget.

In this evolving landscape, it’s vital for the supply chain and consultancy firms that subcontract on behalf of oil and gas clients to remain compliant, agile and competitive.

In light of the Ukraine war, one message is clear though: the UK needs greater energy independence. The question is: what should this look like?

There was positive news for the oil and gas sector at the beginning of October, when then Prime Minister Liz Truss confirmed new licences for major North Sea projects. For businesses and the flexible supply chain alike this was welcome news, signalling the potential for an increase in tenders.

Then, in Jeremy Hunt’s November Budget, a focus on energy independence and efficiency was announced. As well as a focus on renewables, confirmed nuclear investment in Sizewell C is expected to create 10,000 jobs, so the battle for experienced contractor talent is expected.

The government confirmed that the energy profits levy will increase to 35%.

Prior to the announcement the trade body Offshore Energies UK (OEUK) warned that the increase could see businesses “reconsider investment plans worth billions” which would have a significant impact on future investment in the industry. Attempting to reassure the industry, the Chancellor stated the windfall taxes will only be temporary.

It’s evident that the oil and gas sector is going through a period of change with needs of businesses set to fluctuate. So how can the hiring supply chain remain competitive and offer an attractive proposition to both contractors and end clients?

Being able to evidence compliance is key, particularly for longer and more complex supply chains. This was clearly demonstrated earlier this year, when High Speed 2 (HS2), the public body responsible for developing the UK’s high-speed rail network, stated that it was anticipating a £9.5m IR35-related tax bill.

HS2 used a thirdparty provider to deliver what is assumed to be a contracted-out service as opposed to provision of labour. As a result,

HS2 did not carry out employment status determinations, taking the view that it was the thirdparty’s responsibility to determine the IR35 status for each contractor utilised to deliver the service. Broadly speaking, this is correct – contracted out service providers are responsible for determining IR35 status. However, if the service provided is a provision of labour as part of or disguised as a consultancy agreement or statement of work (SoW), the end client can be at risk. This is because the agreement would not be a genuine managed service and the responsibility for IR35 determinations would rest with the end client, which is where HS2 fell foul of the rules.

There are also broader supply chain regulations to be aware.

For example, under the 2017 Criminal Finance Act, ‘failure to prevent the criminal facilitation of tax evasion’ is a prosecutable Corporate Criminal Offence (CCO).

This legislation encourages due diligence to be exercised on business partners and suppliers, posing a significant compliance risk for those with long supply chains. If found to be non-compliant, this could see reputational damage passed onto clients.

To support businesses, the government published guidelines and advice for labour supply chain due diligence last year.

CYCLICAL: Matt Fryer says the industry is everchanging.